The Bull Turns 8 Years Old - A Perspective from AAII and me
On Thursday, March 9th -- yesterday -- the bull market turned eight years old. The anniversary makes the current bull market the second-longest since World War II. Stocks will have to continue their ongoing upward trend for an additional 17 months to catch up with the 1990’s bull, which ran from October 11, 1990, through March 24, 2000.
Bull market anniversaries are always notable as benchmarks, but they don’t answer the question of “what do I do now?” In this week’s commentary, I share some observations and suggestions that may help.
1. Bull Markets Don’t Die of Old Age—Yes, the bull market is getting up there in age. Howard Silverblatt of S&P 500 described it as being 127 in human years. Yet, age has nothing to do with how long a bull can run. It’s always a complication of some sort that lassoes the rally. The 1970-1973 bull market was slayed, in part, by a steep jump in oil prices. The 1974-1980 bull market ran right into a wall created by Paul Volcker’s war on inflation. The dot-com bubble popped because of extraordinarily high valuations and unsustainable business models. Bad housing loans took down the 2002-2007 bull market.
2. There Has Been Plenty to Worry About, and Stocks Have Still Risen—This bull market started at the nadir of the worst financial crisis the U.S. has suffered since the Great Depression. Following it was the 2011 sovereign debt crisis in Europe. The U.S. government faced shutdowns over political disagreements. Several Middle Eastern countries incurred uprisings and, in some cases, civil wars. Oil prices plunged in 2015 and have yet to return to previous levels, creating problems for the entire energy sector. Election surprises have occurred worldwide (including here in the U.S.), and France’s upcoming election is being closely watched. In the background has been uneven and slow economic growth. Yet despite all of these headline events, Mr. Market has rewarded those who haven’t given into their fears.
3. We Don’t Know What Will Eventually Stop This Bull—There is a whole host of threats we can point to: continued uneven and less-than-stellar economic growth, national and international politics, interest rate hikes (we will likely get one next week), equity valuations that are no longer cheap (a P/E of 19.9 for the S&P 500 index), irrational exuberance for social media IPOs (ahem, Snap), one or more new military conflicts, etc. The thing is that we don’t know what will actually cause the next bear market; it could well be something different than mentioned here. As Meg McConnell of the New York Federal Reserve explained (and was quoted by Warren Buffett as saying), “We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.”
4. The Impressive Bull Market’s Gains Were Realized Only by Those Who Have Stayed Invested—Consider a $10,000 investment made in the Vanguard 500 Index fund (VFINX), or a similar type of fund, on January 1, 2009. (Not quite the start of the bull market, but the date represents a less-favorable starting point). An investor buying the fund and never shifting out of it would have more than $29,000 today. Had this same investor waited just one calendar year to get into the market, the investment would be worth $6,000 less—a significant fear penalty. Lest you think I cherry-picked 2009, consider the fact that the S&P 500 also realized double-digit gains in 2010, 2012, 2013, 2014, and in 2016. Put another way, both the average and median annual gains for Vanguard’s S&P 500 index fund have been in excess of 14% during the past eight calendar years—good money for those who set aside their nerves and stuck with stocks.
5. What You Do After You Invest Matters More Then When You Invest—One of the most common questions those of us in the investment field are asked can be paraphrased as: “Is now a good time to be invested in stocks?” The answer is always yes as long as you don’t need the money for at least a few years. If this answer sounds surprising, consider the data. I’ve looked at what would happen if someone invested at the start of 2000 and 2007—right before the start of the last two bear markets. In both cases, those who did nothing or periodically rebalanced have amassed significant wealth. Those who panicked and sold during the two previous bear markets have experienced a lasting decrease in their comparative wealth. So, worry less about investing at the wrong time and focus more on adhering to a well-thought-out long-term plan.